Trump Trade Spat May See Top Soy Exporter Brazil Turn to Imports

(Bloomberg) -- The U.S.-China trade spat is turning the global soybean market into a merry-go-round that may see top exporter Brazil turn to imports.

With Brazilian prices benefiting from the feud, the South American nation could take advantage by maximizing sales to top importer China. But to do that, it’ll have to turn to neighbor Argentina to buy soybean meal, a key ingredient needed to feed its poultry industry, according to JPMorgan Chase & Co.

Brazil could even consider importing soybeans at a cheaper price than it exports them, said Andre Pessoa, head of Agroconsult in Sao Paulo.

The trade tension that’s roiled crop markets in the past month will escalate if President Donald Trump slaps tariffs on $34 billion of Chinese goods as planned Friday, with China promising equal retaliation. The U.S. is the second-biggest soybean supplier to China and shipments could more than halve if duties are enacted. That would benefit Brazil, already the top supplier to China.

“We will need to see soybean meal from Argentina pushed into Brazil” to meet feed demand, said Tracey Allen, a London-based analyst at JPMorgan. “That’s realistically the only way to enable maximum soybean export flow from Brazil to move into China, and to supply the domestic demand.”

As U.S. soybean prices slid, the premium Brazilian beans command over futures in Chicago has already doubled. To take advantage of that, Brazil may seek to import cheaper supplies from elsewhere, either for domestic crushing or re-export, Pessoa said.

Brazil could step up imports from Paraguay next season, said Ana Luiza Lodi, an analyst at broker INTL FCStone Inc. in Campinas, Brazil. U.S. imports are less likely because of high freight costs, she said. An 8 percent import tax on U.S. soybeans also makes the transactions costlier.

“It will be too expensive to move U.S. beans into Brazilian crushing facilities upcountry, because of the location of the crushing facilities, which tend to be close to farming areas in Mato Grosso and other states where you originate the beans,” JPMorgan’s Allen said. “You will see certain volumes of U.S. soybeans moving into Brazil, but I don’t think it will be the dominant trade flow.”

To meet Brazil’s demand for soybean meal, drought-hit Argentina may need to bring in soybeans from the U.S., and there are already signs of that happening. Argentina has committed to buying 540,000 metric tons from the U.S. in the 2018-19 season that starts in September, adding to purchases of 89,000 tons this season, U.S. Department of Agriculture data show.